From: Jim Markey [Jim.Markey@kellogg.com]
Sent: Friday, May 17, 2002 5:02 PM
To: rule-comments@sec.gov
Subject: Comments on File Nos. S7-08-02 and S7-09-02
May 17, 2002
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
Via rule-comments@sec.gov
Re: File Nos. S7-08-02 (Proposed Rule for Acceleration of Periodic Report Filing
Dates and Disclosure of Website Access) and S7-09-02 (Proposed Rule for
Disclosure of Certain Management Transactions on Form 8-K)
Dear Mr. Katz:
On behalf of Kellogg Company, which has a public float of more than $75 million,
I wish to express my concern about certain aspects of these proposed rules,
which would accelerate the time for filing our periodic reports and which would
require management transactions to be promptly reported on Forms 8-K, as well as
on SEC Forms 4 and 5.
With regard to the first rule, I believe that the 30-day acceleration of the
filing date for the Form 10-K will result in extra costs for Kellogg Company and
other companies with a public float of more than $75 million. I would also
expect the acceleration of the filing date for the Forms 10-K and 10-Q would
result in more errors in filed documents. Let me explain why:
Currently, Kellogg Company prints its annual report to stockholders on a
web-press during the first week of March, with that document and the proxy
materials being sent to our stockholders in mid-to-late March in time for a late
April annual meeting. Until that document is finalized, we intensely review the
report, in its web-press format, for errors. When that is finalized, we then
export the data file to our financial printer, who translates significant
portions of it for filing with the SEC as part of our Form 10-K using the EDGAR
system. Handling the process in this way allows us to make changes to only one
data file at a time.
The 30-day acceleration, however, would require us to establish two data files
at some point in mid-February, and to ensure that the same changes are made to
both files, which will raise the cost of printing the Form 10-K. This increase
in complexity also raises the chances that errors will be made. We cannot
simply export the data into the EDGARized version without review because the
data in tables, as well as some other data, is usually re-input by the financial
printer, rather than directly translated.
In addition, most of the people involved in the closing of our books and the
preparation of the annual report and audited financial statements are also
involved in the preparation and review of the Form 10-K. Accelerating the
filing date for the Form 10-K by 30 days could also lead to errors by further
stressing those people. Many of these same people, by the way, are also
involved in closing our books on a quarterly basis and in preparing our
quarterly earnings releases and Forms 10-Q; I have the same concern about
accelerating the Form 10-Q filing deadline.
I also wonder whether the acceleration will generally be regarded as
significantly increasing the quality and availability of financial information.
Kellogg Company, like many companies, already provides (usually within thirty
days of quarter-end) a consolidated statement of earnings, including operating
segment data, as well as a consolidated balance sheet and statement of cash flow
as part of its quarterly earnings releases. Additionally, we conduct a public
investors' and analysts' teleconference, and post supplemental financial data,
on our website. Much of the financial statement information that would be
included in the Forms 10-Q--apart from the more detailed Management's Discussion
and Analysis and footnote information, which take more time to prepare and
review--is therefore already available to investors within the 30 and 60-day
periods, when we publicly release our earnings. Investors might well be better
off having companies provide consolidated financial statements, and other
selected financial data chosen by the SEC, when companies release earnings,
rather than forcing companies--because of work-load and quality concerns--to
choose between providing this information or preparing Forms 10-Q.
With regard to the second rule, it will be a duplication of effort to require
Kellogg Company to report the same transactions on SEC Forms 8-K that our
executive officers and directors report on SEC Forms 4 and 5. It also will
increase our costs. Right now, we file Forms 4 and 5 for our executive officers
and directors in hard copy, but file Forms 8-K using EDGAR. Up to now, we have
used a financial printer to make any EDGAR filings for us, because the number of
annual periodic reports was relatively small. However, with these new
requirements, we could easily be required to file 20 or more Forms 8-K annually
and our financial printer charges approximately $500 for each EDGAR filing, no
matter how small. So our overall costs would increase significantly. I would
strongly suggest that the SEC simply accelerate the time to file the applicable
Forms 4 and 5 instead of requiring the additional filing on Forms 8-K.
The two-business day filing requirement for some transactions would also require
Kellogg Company, like other companies with at least $75 million of public float,
to hire an additional person, or to train several back-ups. Like most U.S.
companies, Kellogg Company has a very lean legal staff, with each of our lawyers
having responsibility for several areas. Under the new rules, Kellogg Company
will always need to have someone else available to prepare and file Forms 8-K
quickly, which will increase our costs, because there's no deadline extension if
the dedicated lawyer is ill, or is handling an acquisition, litigation or other
business far away from the office.
Sincerely,
/s/ James Markey
James Markey
Vice President and Chief Counsel--Securities and International
Kellogg Company